Primary motor insurers in the more commoditized classes of business have attracted the most competition. As a result, the market remains flat to soft. Of significant concern is the continued rise in adverse loss development on motor third party liability (TPL) bodily injury losses due to the effects of social inflation and the new compensation levels caused by European Union (EU) harmonization, higher annuities provisions, higher awards for pain and suffering and medical inflation far exceeding salary and wage inflation.

Both Italy and Portugal experienced significant excess of loss rate increases in motor liability. Primary companies in Italy have increased their minimum limits offered from EUR 775,000 to EUR 2.5 million due to the fifth EU directive. Forty percent of the primary market insured only the minimum limit so this move had a significant impact on increasing overall portfolio exposure. As a result, reinsurance rates for attachments below EUR 2.5 million have increased between 15 percent and 20 percent whereas the impact above EUR 2.5 million has been less pronounced with rate increases averaging 5 percent. Similarly, Portugal has experienced reinsurance rate increases of 15 percent to 25 percent. The rest of the continent remained relatively flat and rates in Central and Eastern Europe and France were flat to up 5 percent.

Insurers continued to compete for market share with no lack of capacity except for high hazard classes such as global chemical and pharmaceutical product liability. Primary casualty rates generally remained flat and the effects of the recession reduced premium income by 20 percent to 30 percent. Adverse loss development continued on motor bodily injury losses driven by both social and medical inflation. Premiums, however, are not expected to decrease by the same amount due to minimum premium and rate on line charges for excess liability. Although soft market conditions are expected to continue there are concerns about the long term ability of insurers to price for inflationary increases.

There is ample reinsurance capacity for most classes of business. Excess of loss reinsurance rates remained generally flat, but in some cases declined by as much as 5 percent. New entrants, particularly at Lloyd’s, have quickly responded to opportunities to provide coverage solutions on renewals facing coverage restrictions and rate increases. Combined with the trend of insurers to diversify the lines of business they write, a number of companies and syndicates are now entering the Continental Europe long tail reinsurance market. A number of smaller insurers are increasing their use of reinsurance as the most efficient source of capital in response to Solvency II requirements.

In order to maintain reinsurance rate levels, there were some concessions given on exclusion buy backs such as offshore products liability, terrorism, incidental marine and aviation, and limited coverage for environmental public legal liability under the new EU Environmental Liability Directive.

In 2010, the casualty market in Continental Europe is expected to remain operating in a strongly technical environment with most treaties undergoing actuarial review. For more commoditized and benign casualty risks, abundant capacity is expected to hold down rate increases and potentially contribute to slight decreases.

Latin America

Rates were flat except for insureds with adverse loss experience in which the average rate increase was 10 percent. Competition is increasing because of new Bermuda capacity in the region and Lloyd’s activity in Brazil. The outlook for 2010 is for continued original rate softening which will be challenging for both insurers and reinsurers.

The change at January 1 in Brazil’s compulsory local market reinsurance cession from 60 percent to 40 percent has been a key growth driver for reinsurers. Argentina and Venezuela experienced less interest from reinsurers because of uncertainty surrounding recent currency devaluations.